August 25, 2004

Ladd gave a brief history of the Rice Room as well as the story behind Rice
and Greeley and the AUA / UCA merger in 1961.

Quick introductions were done as Einhorn was not at the April meeting.

Gabert presented background information on the schedule for the FY04 audit.
The Committee asked for the management letter to be ready for the October 2004
Audit Committee / BOT meeting. Merck said that we should be clear on the Management
Letter, he said that we want them to be picky but with more of a systemic approach
rather than detailed with focus on management control. Smith said the committee
and the auditors should be looking at missed opportunity and there needs to
be a conversation between the Audit Committee and the auditors without any staff
present. Saunders wanted to know why D&T weren’t more detailed in
the past. Ladd said, speculatively, that when we asked them for a higher view
that this team of auditors does not have the skill sets to provide this information.
Gabert added that this is an issue to be considered during the RFP process.

Jim Winning, audit partner representing D&T, joined the meeting at 9:20.
Winning presented a brief synopsis of the audit plan for the FY04 audit. Reece
asked that Winning specify where in the plan there were differences between
this year’s plan and previous years. Ladd asked that if there was someone
on site that has trade publishing experience. Winning noted that a consulting
partner in their Long Island office has provides such a technical review. Saunders
expressed his disappointment that there wasn’t a local auditor with experience
in these areas. Winning said he didn’t see this as a problem since methodology
is only a small area of the audit. Specialized auditors are not necessary for
the purpose of conducting such a review. Winning described the background of
Sarbanes-Oxley and the role of the auditors during the audit. (Please reference
the 2004 Audit Plan handout for further detail.) Ladd asked about the internal
control aspect of the audit. Winning said the auditor’s purpose is to
conduct an audit of the financial statements and if they aren’t comfortable
with certain aspects, they then look into the internal control procedures. The
auditor does need to become familiar with the internal controls to understand
the financials. They do not however, audit the internal controls based on the
number of transactions the UUA has. The auditors seek confirmations from banks
and loan customers but not from vendors. Reece asked some questions about the
volume of work involved with testing internal controls over transaction auditing.
Reece requested information about billable hours versus invoiced amounts and
planned amounts of time on an annual basis. Winning gave information on FAS
116, 117, and 124 and what they require. Winning said that another issue is
looking at donor-restricted funds and making sure that allocation of these funds
and accounting for them is properly recorded. Winning also said they look at
certain numbers and projections, which are based on highly subjective numbers,
for instance the royalty projections on BP books. Winning described the timing
of the audit. The draft financial report will be available on September 24th.
The target is to mail out the management letter to the Audit Committee the first
week of October and no later than October 8th. Merck asked for some discussion
on the content of the management letter. He would like more systemic conversation
rather than detailed “nitpicking”. Are there things that we should
be doing? Smith said that this might be a matter of being forward thinking rather
than backward thinking which auditing typically is. Are there best practices
out there that we are not looking at? Winning made it clear that while they
can draw comparisons, they cannot and will not act as business advisors. Reece
said that he needs to be comfortable in his sense that the auditors are being
thorough before he can sign off on the audit and report to the BOT.

Lucia Santini-Field, Chair of Investment Committee, and John Pattillo, Chair
of Congregational Properties and Loan Commission joined the meeting. Their presence
was requested because of the nature of their committees’ work and the
relationship to the audit and the financial statements. At the last meeting
Santini-Field had said that she didn’t feel the audit was particularly
useful to her committee. Winning said the requested end results need to come
from the end user. Winning summarized that the two issues were making the statements
more user friendly and also increasing the comfort level for the committees.
Pattillo also said that he would be comfortable with providing summarizing information
in to the footnotes but we don’t need the level of detail provided to
committees. Darwin clarified that the footnotes are compiled by the Treasurer’s
office but should come from the committees or departments. Merck said that one
way the auditors can be successful in this is to bring suggested alternatives
or examples of other ways in which investment accounting reporting has been
approached in other not-for-profit organizations. Santini-Field recommended
that we look at other religious groups and see what reporting they use other
than full blown financial reporting. Pattillo agreed to have the CPLC quarterly
reporting provided to the committee.

Added to last meetings notes: As amended, Merck questioned the meeting notes
Capital Campaign funding. We wanted to make sure there was clear reporting as
to the actual costs and the sources of the campaign. Also, clear reporting for
comparison purposes as to the types of funds raised. It was discussed that using
unrestricted funds for raising restricted funds is not exactly a one-for-one
match. Merck said it easy to lose focus of exactly what the campaigns are for.
Change spelling of Reese to Reece.

Larry is still happy.

MSP: Approve the minutes as amended.

Ladd moved on to the RFP for the audit. Gabert sent out copies of the previous
RFP from November 2000. Gabert will look at Ernst & Young, Deloitte &
Touche, PriceWaterhouseCoopers, McGladrey & Pullen, Tonneson & Company,
KPMG, Mike Burns, Tofias PC and others that may be used by other religious denominations.
We last looked at firms that are national in function because of the UUA footprint.
If this is no longer a primary “screen” then we will also consider
regional auditing firms. Saunders asked if we could discuss this further. Ladd
said the ‘pro’ reason is to reassure various stakeholders and concerned
parties that we are using a well-known brand name. Smith suggested that rather
than having a conversation around having a national versus regional search we
instead do a search by “business” segment. Ladd said this is what
we looked for in our previous bidding process. Saunders feels the other key
issue is the BP issue, where it is critical that we have competent auditing
experience and he doesn’t think we’re receiving now. Saunders asked
if we could check with other similar organizations to see who they have as auditors
and their impression of the services they receive. Reece said that with the
focus on BP and nonprofits we should consider different auditors for each segment.
Smith is concerned with cost because of the fact that BP financial statements
are both separate and consolidated with the UUA statements. Merck said we have
to remember we’re small potatoes in the grand scheme of things. We are
not going to get everything so we should decide what’s important to us
and set priorities. Saunders said it’s better to go with a regional firm
that sends us their best partner than a national firm that will send us less
than their best. Reece agreed. We won’t rank as a large account with one
of the big 4 firms. He said it might be better to go with a larger regional
firm where we represent a significant customer. Smith said that maybe we shouldn’t
focus on BP. He questioned the wisdom of focusing on BP but not doing a full
audit of the General Investment Fund. BP is the hot button now but will it continue
to be? Smith said the RFP should perhaps be rewritten to say that we are in
fact an amalgamation with a current specific focus on publishing. Merck said
that if Grant Thorton were really a great match why commit to another firm for
three years because of a conflict of interest (Ladd is a partner there). Reece
believes the threat of another poor audit by D&T might well outweigh the
benefit of waiting. Saunders asked why we are excluding Grant Thorton if Ladd
is leaving his position as Financial Advisor. Einhorn and Smith raised points
that even if we take precaution in regards to conflict of interest it could
very well be viewed as such anyway. Merck asked for clarification on whether
this was an indictment of Deloitte or are we more just unhappy with their overall
service over the years. Ladd said that on the whole we have just been unhappy
with their commitment level and attention to detail. Einhorn said we have had
some issues with staff although that has been better in recent years. She also
feels that their lack of knowledge around certain non-profit practices is hindering
the services that we are being provided. Smith asked if we should inquire at
Deloitte for a different partner. Ladd said that they do not have another non-profit
audit partner in Boston. Saunders asked about what kind of leverage we have.
Reece said that he wants to be comfortable as to why we are not happy with Deloitte.
Reece wanted to make sure that we just feel that we are not getting enough but
they are certainly holding us to GAAP and Generally Accepted Auditing Practices.
Ladd clarified that we are on a year-to-year basis with Deloitte and are not
under a long-term commitment. Saunders suggested we refashion our RFP to not
limit it to national firms. Smith said we need to consider that Deloitte’s
lacking may be a lacking personality rather than a lack of corporate functionality.
Reece proposed we do a business segment search rather than national versus regional.
Saunders said he’s enthusiastic. For pricing on the proposals Reece would
like to see it broken out what pricing would be to look at the segments of the
UUA, BP, and the Endowment and in combinations thereof. Merck believes we need
to have more conversation on the Endowment before we get in to auditing. It’s
important to have a conversation regarding investment practices but he doesn’t
know if that’s within the realm of responsibility of the Audit Committee.
Reece said he is hearing three different things, the GIF needs to be audited,
the GIF needs financial statements, the Auditors need to create financial statements
and then audit them and that the third item cannot happen. Merck said there
needs to be more clarity between accounting and reporting.

Gabert handed out an article from the Wall Street Journal dealing with Fidelity
Investments who administer our defined contribution retirement plan. Our plan
currently has approximately $127,000,000 in it. Fidelity was fined $2,000,000
for illegal issues in the West Coast that did not affect customer accounts and
did not impact our holdings. No action is necessary; this is solely meant as
an FYI in case committee members are questioned on this matter. Ladd said Fidelity
is not a great corporate citizen because of their investing practices. This
has been contentious in the past because some see Fidelity as a service provider
for the UUA and question why we selected them.

Ladd moved on to drafting the Audit Committee Charter. Ladd created a draft
charter that was modeled in part on the Investment Committee’s rules and
regulations. Smith said we need to frame this within the context of the committee
role and functions. Most of the bullets are likely to be due diligence but should
it be forward looking in focus? Merck said that his experience with audit committees
is that they function internally rather than globally. Saunders said he cannot
speak for the Finance Committee but he feels they would be happy to see the
Audit Committee take a more global role. Questions were raised as to whether
a global role should be codified within the Charter or should it be practice.
Saunders and Smith expressed the opinion that it should in fact be codified.
Saunders feels that the word planning should be avoided because of political
reasons within the board. Smith will supervise revisions of the charter via
email.

October 12 Meeting

Review of draft management letter

Review with Santini-Field for Endowment issues.

Meet the UUA’s Financial Services Staff Group

Status report on the RFP (redrafted letter) and list of firms who will receive
it.